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Why Basel's not faulty

Chris Marrison

01 Jan 2009

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Some government representatives have suggested that Basel II should be abandoned because it is pro-cyclical, i.e. it requires banks to hold more capital in bad times thereby exacerbating any credit crunch. This suggestion may be a sensible view if the plan is to replace bank capital with government ownership, but otherwise it requires a more considered analysis.

In essence, the Basel II Accords say that the amount of capital should be proportional to the risk of the bank. Clearly this is better t